Policyholders to get a refund of the premium or proportionate premium for the unexpired policy period if he chooses to cancel his/her policy at any time during the policy term.
Insurance companies will now be liable to pay the special surrender value to the person insured if he exits the policy after one year. No exit payouts were given until now in the first year
Life insurance policyholder who want a seamless exit payout can now get one as the Insurance Regulatory and Development Authority of India (IRDAI) has introduced provisions that provides higher surrender value.
At present, the policyholders don’t get any sum or receive less payout if they discontinue their premiums. The regulatory authority has ensured that the insurance company establishes “reasonableness” for existing and continuing policyholders.
What are the New Provisions?
Insurers will now be liable to pay the special surrender value if the exit takes place after completing one year. No exit payouts were given until now in the first year. This provision can be utilised if the policyholder has already paid the premium for the first year.
IRDAI has specified that Special Surrender Value must be at least equal to the expected present value of future benefits (accruing from the paid-up capital), paid-up sum assured on all contingencies and accrued or vested benefits provided in the policy (such as survival benefits).
For non-linked pension products, assured benefits should be disbursed upon vesting, except in the case of linked pension products where the payment of defined assured benefits upon vesting is discretionary.
IRDAI has clarified that pension products provided to individual customers must offer specific assured benefits, which may be disbursed in the event of death or any covered health contingency.
A policyholder with multiple health insurance policies gets to choose the policy under which he/she can get the admissible claim amount.
In the event of no claims during the policy period, the insurers may reward the policyholders by providing an option to choose a No Claim Bonus, either by increasing the sum insured or discounting the premium amount.
Policyholders to get a refund of the premium or proportionate premium for the unexpired policy period if he chooses to cancel his/her policy at any time during the policy term.
What is Surrender Value?
If a policyholder stops paying premiums after a certain period, the policy continues to exist albeit with a lower sum assured. This is referred to as paid-up value.
The guaranteed surrender value (GSV) under the revised regulations for other than single premium products is 30% if the policy is surrendered in the second year, 35% in the third year, 50% between four years and seven years, and 90% during the last two years.
For single premium products, the GSV will be 75% if surrendered within three years and 90% if surrendered in the last two years of the policy tenure.
What Does IRDAI Seek to Achieve?
The regulatory authority wants to both safeguard and avert mis-selling. It has asked insurers in its annual report to identify major causes of lapses.
These regulations seek to streamline the operations of entities engaged in reinsurance operations, IRDAI said. By promoting transparency and stability, these regulations aim to create a conducive environment for the growth and expansion of the reinsurance sector, ultimately benefiting both insurers and policyholders in India.
Newly introduced measures such as the processing of cashless authorisation requests within one hour, the freedom to choose treatment of choice, including Ayush-certified therapies, and the choice of adjusting the No Claim Bonus by discounting future premiums or increasing the sum assured are an advantage for the existing policyholders, as per the report by The Hindu Businessline.
In 2022-23, the insurance industry recorded a premium income of Rs 7.83 lakh crore – about 13% growth YoY. The private sector’s premium grew 16.3% while that of public sector insurers rose 10.9%.
The IRDAI said the regulations aim to promote prudent practices in risk management related to outsourcing activities by insurers.